Q1 2022 LTC Properties Inc Earnings Call
Excluding the question answer session May include forward looking statements subject to risks and uncertainties that may cause actual results and events to differ materially.
These risks and uncertainties are detailed in LTC properties filings with the Securities and Exchange Commission from time to time, including the Companys. Most recent 10-K. They said December 31st Chief off in 'twenty, One LTC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date of this presentation.
Please note. This event is being recorded I would now like to turn the conference over to Wendy Simpson. Please go ahead.
Thank you operator, and welcome everybody to Ltc's 2022 first quarter conference call. Joining me today are Pam Kessler co President and Chief Financial Officer, and Clint Malin co President and Chief investment Officer.
Our industry is seeing evidence of the recovery slowly coming together and we are hopeful about turning the corner on Covid.
As a needs based industry I believe the long term picture for our industry remains positive based on solid demographics and fundamental needs for the care of our senior population.
For the large majority of our industry. However, there was some distress felt in the first quarter as operators continue to deal with hurdles such as labor pressures and inflation.
More recently announcement of potential trimmed skilled nursing Medicare reimbursement levels added another layer of complexity for the skilled nursing industry.
However, occupancy is increasing in several markets and temp agency utilization appears to be dropping.
Several of our private pay operators have implemented rent hikes to offset higher labor and supply costs.
None have reported pushback from residents or their families.
I believe that we are steadily moving toward a pre pandemic environment.
LTC has operated successfully through decades of market and real estate cycles.
And we have always supported our operators as we both surmounted industry challenges. This environment is no different.
So far in 2022, we have successfully put capital to work for our shareholders and our opportunities are more robust than they recently have been.
Clint will talk about our pipeline in more detail later, but to summarize we closed approximately $77 million in investments year to date and have identified several additional strategic investments that will advance our growth.
I would now like to share some stories from our operators with you I've been spending time with them recently, both in person and virtually and it has been very inspiring.
I'll start with our partner <unk> Health care, who recently presented their start of the year award to an employee at our Lone Star rehabilitation and Wellness Center in Stephenville, Texas.
Mr Griffin.
Who is chosen for the award among employees at 40, <unk> centers has been helping care for patients for more than two decades.
Especially noteworthy is that <unk> recognized misty seniority as a former senior care employee.
Mr. <unk> was presented with a new car in recognition of her embodiment of <unk> values and mission of taking care of people.
One of the reasons, we are working with <unk> is because of their great culture.
Misty and this award exemplify that.
I recently toward Corso, Atlanta, with our operating partner Gallery living.
Billed as the Atlanta's most luxurious senior living community is definitely lives up to that description is truly spectacular.
Our investment with Corso Atlanta demonstrates how mezzanine financing allows LTC to be part of a very large and impressive project all while expanding our relationships with excellent regional operators and generating positive returns.
Finally, we are honored to be mentioned in a recent book written by Cindy Baier CEO of Brookdale senior living titled Hero's work here, an extraordinary story of courage resilience and hope from the front lines of COVID-19. The book provides a behind the scenes look at how Brookdale.
<unk> has navigated the COVID-19 pandemic.
One of the things that makes this book so interesting to me is that LTC is featured as a flexible capital partner.
Something on which we pride ourselves.
A few months into the pandemic, we worked collaboratively with brookdale to consolidate four leases into one master lease.
As Cindy said in the book through collaboration is focused on finding solutions that work for both parties and a renewed commitment to our partnership cornerstone.
We're able to achieve a positive outcome that protected brookdale interests in the midst of substantial uncertainty.
I would now like to provide a brief update on anthem.
Last quarter I described the strides we have made since we first reported on their challenges several years ago.
Since our fourth quarter call, we have learned that anthem experienced an occupancy decline and cost increases, resulting from a surge of the army crown variant in Q1 that may make it difficult for them to pay the full second quarter cash rent of $2 7 million.
Anthem has experienced similar short term occupancy declines, resulting from surges of other variants and rebuilt <unk> rapidly in each case.
We believe occupancy will recover and with anthem expected receipt of additional stimulus funds, we still anticipate receiving total cash rent from anthem in 2022 of approximately $10 8 million in line with prior guidance.
However, we are lowering the rent we expect to receive from them in the second quarter to $2 $1 billion, but anticipate they will be able to make up the shortfall over the remainder of the year.
We maintained our <unk> 19 per share monthly dividend during the quarter with a payout to shareholders of $22 5 million.
Our fad payout ratio decreased from the fourth quarter to 89% in the first quarter.
Based on our recent investment activity and assumed rent payments from the former senior care and senior lifestyle portfolios.
Beck, our fad payout ratio to continue to decline during 2022 and approach our target of 80% by the end of this year.
Our guidance for the second quarter anticipates that <unk>, excluding nonrecurring items from both periods will be comparable to first quarter levels.
Before I turn the call over to Pam I want to spend a moment discussing our enhanced ESG initiatives.
Not only are we focused on these initiatives at the corporate level have been formed both a board and an internal working committee to address issues that are the focus of ESG and diversity.
We are working with our operators to help them understand how they can achieve successes by addressing ESG issues in their operations.
We are establishing a voluntary program aimed at helping our operating partners become good corporate stewards by adopting socially responsible and sustainable practices.
The program together with the free consultation with an expert third party to help operators better understand their options with respect to these initiatives and will focus not only on remediation efforts, but also an encouraging new methods for ensuring best practices with LTC providing.
Attractive financing to facilitate changes.
An added benefit is that oftentimes these initiatives help reduce costs in the long term something in which I know all of our operators are interested.
Now I'll hand, the call over to Pam. Thanks, Wendy total revenue increased by 507000 compared with the first quarter of 2021 interest income from mortgage loans increased $1 7 million for the 2022 first quarter due to loan origination.
Interest and other income increased 442000, primarily related to mezzanine and working capital loan originations, partially offset by payoffs. However.
However, rental revenue decreased by $1 6 million, primarily due to the former senior care portfolio transition, partially offset primarily by increases in revenue from properties transitioned from senior lifestyle and the prior year straight line rent write off.
Interest expense transaction costs and property tax expenses were all comparable year over year as was income from unconsolidated joint ventures.
Our provision for credit losses increased 363000, compared with last year's first quarter, primarily due to the mezzanine loan origination and additional funding under our mortgage loans and notes receivable.
As a reminder, upon origination we record a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principal is paid down.
G&A increased by 775000 due to higher incentive compensation higher noncash compensation charges and increases in overall costs due to inflationary pressures.
Net income available to common shareholders increased 633000 year over year, mainly resulting from loan originations in the prior year's loss on sale of real estate, partially offset by the net decline in rental revenue previously discussed and higher G&A expense.
Fully diluted NAREIT <unk> per share for the 2022 first quarter was <unk> 60.
Compared with 62 in the 2021 first quarter.
Excluding nonrecurring items <unk> per share was <unk> 61 cents this quarter compared with 65 in last year's first quarter the.
The decrease in <unk>, excluding nonrecurring items was due to the net rental revenue decline and higher G&A previously discussed partially offset by higher revenues from loan originations.
During the first quarter, we funded a $25 million mezzanine loan secured by five communities, providing a range of senior living services, and Oregon, and Montana. The long term is approximately five years with 212 month extension options and bears interest at 8% with an expected IRR of 11%.
So funded $9 5 million of a previously committed $25 million secured working capital loan to <unk>, the operator to whom we transitioned to the 11 former senior care properties.
<unk> paid back approximately 800000 in the first quarter, leaving a balance of $18 6 million at March 31 2022.
We expect <unk> to pay down an additional $7 million in the second quarter with further past anticipated in the third quarter.
During the first quarter, we consented to the closure of a 48 unit memory care community, we own located in castle rock, Colorado.
This community was transitioned from senior lifestyle to a new operator during the first quarter of 2021.
The lease with the new operator, which was expected to generate rent of 150000 in year two of the five year lease was terminated as of April one 2022.
The net book value of this property is $5 3 million and we intend to sell it.
Regarding our former senior lifestyle and senior care portfolios I'd like to provide some additional details on expected rents going forward for the remaining fixed buildings in the former senior lifestyle portfolio under two separate two year market base leases, we anticipate receiving 30000 in the second quarter 370000.
In the third quarter and 480000.
In the fourth quarter. These amounts are in line with our prior quarter's assumption our expectation is that we will affect more permanent rents sometime in 2023.
The transition of the former senior care portfolio to <unk> is slightly ahead of projections, primarily due to cost containment benefits projected in the third and fourth quarters.
Accordingly, we continue to anticipate receiving approximately $1 million in the second quarter, but are now expecting higher rent in the third and fourth quarter of $2 5 million in each of those periods as.
As we move through the remainder of the year, we will be working toward amending and extending our HMT lease which would include more permanent rents.
As discussed on our last call, we transitioned two memory care communities in Texas totaling 88 units to a current LTC operator in the first quarter.
The new lease term is two years with cash rent starting in month five based on mutually agreed upon fair market rent.
We recognized 282000 of rent from these transition communities during the first quarter and anticipate recording approximately 370000 of cash rent during the second half of 2022, which is unchanged from last quarter.
During the first quarter, we entered into agreements to sell two assisted living communities and one skilled nursing center.
Subsequent to the first quarter, we sold one assisted living community.
First as previously discussed fields senior living has exercised the purchase option on two assisted living communities in California totaling 232 units. Accordingly, we entered into an agreement to sell the properties for $43 7 million.
Properties have a gross book value of $31 8 million and a net book value of $17 million, we expect to close the sale within the next week or so and we anticipate recognizing a gain on sale of approximately $26 million in the second quarter.
During 2021, we recognized cash rent of $2 5 million and GAAP rent of $2 8 million from these communities. This represents an implied yield of five 7% on the sales price.
Second we entered into an agreement to sell a 121 bed skilled nursing center in California for $13 3 million. The property is under a lease that matures in July 2022 has a gross book value of $4 6 million and a net book value of $1 8 million, we anticipate recognizing a gain on sale of approximately $10.
$5 million in the second quarter of 2022.
During 2021, we recognized cash rent of 833000 in GAAP rent of 764000 from this property. This represents an implied yield of six 3% on the sales price.
Finally, subsequent to the first quarter, we sold a 74 unit assisted living community in Virginia for $16 9 million. The property has a gross book value of $16 9 million and a net book value of $15 5 million.
In connection with the sale of the current operator paid us a $1 2 million lease termination fee, which equates to one year's worth of Rick.
We expect to recognize a gain on sale of approximately $1 3 million in the second quarter. This represents an implied yield of seven 1% on the sales price.
Also subsequent to the end of the first quarter, we acquired for transitional care centers in Texas with a total of 339 beds and mostly private rooms for $51 5 million Clint will provide additional details shortly.
In summary, since the beginning of the year, we have invested 77 million to date, we have sold or are contracted to sell properties generating approximately $72 million in proceeds.
Moving now to our debt activity during the 2022 first quarter, we borrowed $47 million under our unsecured revolving line of credit as of March 31, 2022, we had $157 9 million outstanding with $242 $1 million available for borrowing under the line.
Subsequent to March 31, we borrowed an additional $52 million to fund the acquisition of the four transitional care centers in Texas, and repaid $18 million using proceeds from the sale of the 74 unit assisted living community in Virginia.
During the quarter, we paid $7 million in regular scheduled principal payments under our senior unsecured notes.
As Wendy mentioned during the quarter, we also paid $22 $5 million in common dividends.
Presently we have $4 4 million of cash on hand, $208 $1 million available on our line of credit with $191 9 million outstanding and approximately $200 million available under our ATM, providing us with ample liquidity of over $400 million, we have no significant long term debt maturities over the next five.
Five years.
At the end of the 2022 first quarter, our credit metrics remained solid with a debt to annualized adjusted EBITDA for real estate of six one times and annualized adjusted fixed charge coverage ratio of four four times and a debt to enterprise value of 33%.
Although our debt to annualized adjusted EBITDA for real estate metric remains higher than our long term target of below five times. We expect this metric to trend lower during the year with increased rent from the properties previously leased to senior care and senior lifestyle and as recent investments start producing current revenue along with debt reductions from principal paydowns.
On our line of credit from asset sales and scheduled principal paydowns on our senior unsecured notes.
I'll close out my comments today with rent deferrals and abatements during the first quarter, we provided $1 3 million in rent deferrals and 720000 rent abatements again to the same small subset of operators that had been receiving assistance from us.
In April we provided a total of 376000 of deferred rent and 240000 of abated rent further we have agreed to provide rent abatements up to 240.
For each of May and June of 2022.
Additionally, we agreed to reduce expected rent from anthem by 300000 for each of May and June 2022.
I'd like to provide some additional detail about the operator, who represents the majority of deferred rent. Please concentration is not in our top 10.
During 2020, we consolidated our two master leases with this operator into one combined master lease and agreed to abate 650000 of rent and allow the operator to deferred rent as needed through March 31 2021.
This combined master lease was amended during 2021 and 2022 to extend the rent deferral periods through April 32022.
As such the operator deferred rent of approximately $1 3 million for the first quarter of 2022 and 376000 in April .
As of April 2022, the differed balance due from this operator's approximately $6 6 million. We have not recorded this does revenue nor have we abated rent.
Our guidance does not include any revenue from this portfolio, we expect to address this deferred rent as we work with the operator toward a resolution for the portfolio now.
Now I'd like to turn the call over to Clint.
Pam I will start today with a quick occupancy update on the former senior lifestyle portfolio, which includes 18 communities occupancy at March 31, 2022 was 83% increasing from 81% at January 31, 2022, philosophy for which we provided information.
For the six communities under two separate two year market based rent leases occupancy was 76% at March 31, 2022 up from 69% at January 31 2022.
For the 11 property portfolio that has been transitioning from senior care to <unk> occupancy for the month of March 2022 was 56% compared to 57% of January 31 2022.
The leadership changes made by <unk> in several of our buildings.
Nothing issues of the Permian.
In Q1, and the transition of the buildings to <unk> in the middle of your own home surge, we're comfortable with how <unk> is addressing these issues as well as our focus on cost containment.
Reflecting this optimism as Pam mentioned.
<unk> 2022, <unk> rent items up $1 million from what we previously anticipated.
At the beginning of this month, we acquired for transitional care centers in Texas and will be operated by night medical resorts current OTC operating partner.
These buildings include a total of 339 beds, primarily in private rooms, and our newer construction, which helps reduce the average age of our overall portfolio.
The average age of these four buildings is just over four years.
Fits well with our strategy of acquiring newer skilled nursing centers.
The lease term on the Texas portfolio. It was 10 years, two five year renewal options beginning in the fixed lease year to introduce <unk> ignite has the option to purchase the portfolio.
We expect to receive rent of approximately $1 million each of the third and fourth quarters of 2022, and approximately $4 3 million during 2023.
The rent will increase each year by 2% to 4% starting on the third anniversary of the lease based on changes in the Medicare market basket rate.
This was a strategic acquisition with a strong regional operator.
Before moving to our portfolio numbers I'm pleased to announce that subsequent to the end of the first quarter, we amended brookdale master lease to extend the maturity by one year to December 31 2023.
The renewal options under the new amended mass release did not change except for the term of the first new option.
Do some three years to two years.
Aside from the two year option.
The amended lease also includes a five year renewal option and a 10 year renewal options.
Also change we've made is true for the first renewal to November one 2022 through February 28 2023.
We increased our $2 million capital commitments of $4 million and extend its maturity to February 28 2023.
It also included an incentive for qualified ESG projects.
During the first quarter of 2022 refunded to hundreds of June .
Under the new $4 billion capital commitment was approximately $3 8 million remaining.
Now for our portfolio numbers.
With my usual disclaimer that we don't believe coverage is currently indicator of future performance at this time, given the pandemic and the challenging environment.
Clarity recently transitioned properties, including the former senior care and senior lifestyle portfolios no longer qualify for same store metrics.
So they are excluded from these numbers.
Q4, trailing 12 month, EBITDAR and EBITDAR coverage as reported.
A 5% management fee was <unk> 99 times.
Seven to eight times, respectively for our assisted living portfolio.
Including stimulus funds received by our operators coverage was <unk> 88 times and six seven times respectively.
For our skilled nursing portfolio.
We reported EBITDAR and EBITDAR coverage was 192 times and 146 times respectively.
Excluding stimulus funds coverage was 157 times and one two times respectively.
Moving now to some recent occupancy trends, which are as of March 31, 2022 for our same store portfolio. Our partners have given this data to us on a voluntary and expedited basis. So the information we are providing includes approximately 63% of our total same store.
And approximately 89% of our same store skilled nursing beds.
Pay occupancy was 78% at March 31 in January 31, 2022.
76% at September 32021.
For our skilled portfolio.
Monthly occupancy was 73% in March of this year, 72% in January of this year and 70% in September 2021.
Finishing up with our pipeline is when do you set the pace of pipeline opportunities is robust and hasn't really slowed down since late last summer.
Pipeline is currently valued at approximately $70 million expense private pay and skilled nursing is geographically diverse and include operating partners new to LTC as well as existing partners. The opportunities are also varied in terms of financing vehicles, including development joint ventures, and mezzanine and mortgage loans.
<unk> strongly in ltc's ability to attract and close new opportunities driven by our ability to provide creative financing structures to bring new operator relationships into our portfolio, while enhancing current relationships.
There is an incredible amount of capital in the market right now and LTC has successfully competing by offering an array of diversified products that are tailored to the needs of operators, who otherwise might not a REIT for their financing needs.
One such example was our $25 million mezzanine loan for the recapitalization of the <unk>.
Property seniors housing portfolio, we discussed earlier.
This investment allowed the partnership owning the portfolio to buyout of an equity fund and.
Another example is the $52 million acquisition, we made in Texas, which broadens the footprint of an existing operating partner and deepens our relationships with ignite.
We never take a one size fits all approach because one size does not fit all.
Can offer specifically tailored financing structures baseline operators needs, giving us a nimble competitive advantage.
Now I will turn the call back to Wendy for her closing remarks, Thank you Pam and Clint.
Our focus in 2022 is on a return to growth.
And I believe we have taken and continue to take the steps necessary to position LTC as a capital partner of choice in today's market.
Before I turn the call over to your questions. The entire LTC team would like to send our deepest condolences to the family of Linda Goodman, who recently passed away after a brief battle with cancer.
Linda and investment advisor was a champion of our industry and of LTC, specifically, but more than that Linda was a dear friend.
Operator.
We're now ready for the questions.
Thank you.
We'll now start the Q&A session to ask a question. Please press Star then one on your touch type of time. So it's really a question. Please press Star then one.
To ask a question. Please ensure that your line is on mute locally.
Okay.
And our first question comes from Steven <unk> from Barclays. Please go ahead. Your line is open.
Great. Thanks, Hello, everyone. Thanks for taking the question.
So I guess needless to say the CMS decision to put the clawback for PDP him into.
The sniff rate for 23 years, obviously, a bummer for the industry I guess over the past 10 years or so there's been very little change from the proposed rates for the final rule each year. So I guess my question is do you think there's any chance that the.
Maybe other trade groups like HCA or others can lobby to either reduce the.
The size of the Clawback or maybe just give it them to spread it out over a few years just wanted to get your updated thoughts around all of this opex.
Yeah.
I mean, there's definitely an active approach by orca two.
To reach out and have upwards provide comment during the strike.
So I'll comment period. So we don't know what the alcohol will be but there is definitely a large effort in the industry to do that.
It can be pushed out over a number of years I think that would be considered a positive but there is a large effort underway and.
We'll see where it goes but a lot of people participating in this we've talked to operating companies.
In space and they are very actively involved.
From <unk>.
Encouraging employees to be able to write letters and not just canned letters, but letters providing specific detail.
And feedback regarding the impact of this proposal.
The the net of all of the changes this year.
4% reduction.
Because they are best market basket increases.
But.
Asia is really hoping that we can at least get the.
A 4% reduction phased in over three years or so.
They have good hope that we can do it and from our operator calls.
They are very very active in getting these letters out to CMS and all of their <unk>.
Congress people for each of the states. So there is a possibility, but even even with that reduction as we've talked to our skilled nursing operators. They werent.
They work for.
Scenting hair on fire situations unhappy about it with the increase in costs and that sort of thing but.
Not panicked about it.
Okay. So the way it stands right now it sounds like the.
The primary rebuttal is to just have it stays then so I guess, that's definitely helpful just to hear that.
Okay I appreciate the color. Thanks.
Thank you. Thank you.
Perfect. Thank you so much for your question.
Our next question comes from <unk> <unk> from BMO. Please go ahead.
Hi, this is malaria on for one.
Your first question how is your watch list trending router to last earnings, especially after talks with tenants and with this updated outlook on government support level, what confidence level do you have that.
No new tenant issues with pop up.
Or that deferrals and abatements are going to increase going forward.
Okay.
The encouraging item, we see as providing deferred unabated rents has really been through a small subset of operators.
We spoke about anthem and our prepared remarks.
Yes, we've seen Covid cases.
The decrease going into Q2 on the private pay side with rate growth is encouraging so.
Right now as we indicated in our prepared remarks, we were optimistic going forward cautiously optimistic.
Okay.
And our abate.
Abated rent for one of our operators.
Actually the assets are cash flow positive after a management fee. So it's not like the operator is.
Cash flow are cash constrained.
It just is.
Change in.
Attention from the operators so we're not concerned about.
Having to give additional abated rent from that operator.
Okay and following up on that no additional transitions either.
No additional lift.
Transitions.
Transitions, although additional potential transition as Pam mentioned in her prepared remarks.
One of the operators of the small subset that we provided deferred intubated rent, we're working on a resolution.
To that so with that we.
We're working on a framework with that operator to facilitate the transition so that is something that.
As expected with having to further abated rent theres got to be a resolution to that so thats something that is in.
And the works the encouraging point of that as Pam indicated the operators not in our top 10.
And our guidance doesn't include any.
Any revenue from this portfolio, but as Wendy mentioned the portfolio is cash flow positive.
So we're hopeful towards the end of the year.
This portfolio will be contributing to that.
Yes.
Great location, when you were talking about deferred right.
Correct right.
Alright, gotcha that makes sense.
Moving kind of.
Topic.
Reis moving where they are do you see that pricing for senior housing and skilled nursing.
Shifting to is there any sign that cap rates could move higher.
And with that kind of pushed us the strategy to maybe a traditional fee simple acquisition versus Margo loan stuff that you guys have been doing.
We would love to see that.
You're evaluating to be able to get that right now.
Not there at this point.
But obviously, we're hopeful that that is a market environment that so we'd be able to participate in.
But in the interim and thinking that for a while.
Thinking hoping.
There's just there's still a lot of there's still a lot of money out there.
That's what's keeping the I think the prices.
Artificially high.
Theyre not trading based on current NOI they are trading on a future.
So that's a hope note.
Call him.
Mhm.
Gotcha.
Thanks, We will now move on to the next question.
The next question comes from also Washington from key capital markets. Please go ahead.
Hey, Good morning. This is Arthur on for Austin, just one for me.
So I'm just trying to understand the.
How big of a percentage of your investment pipeline is comprised of snips and if the recent CMS ruling could potentially could deals on hold or if you might shift.
One elsewhere.
As a result of the ruling.
Sure well, we right now we have one opportunity we're working on on a snap which is development project with ignite which is in our supplemental we provided them alone.
To acquire a piece of land.
Missouri, and so that would be a developed projects right now that would be the one skilled out so that we are currently.
Our investment opportunity that will work out.
Okay.
Future opportunities could be could that sort of change depending on what the SNP ruling.
CMS ruling.
How dependent is youre going to get.
On the skilled nursing side, we really look to invest in newer assets and we have the unique opportunity where at night. So we feel very fortunate ignite brought us.
This transaction to be their capital partner of choice.
And that type of opportunity in the skilled space private rooms newer assets strong regional operator.
Nightstand, a tremendous job executing on their transitional care models. So those are opportunities, we very much look to participate in.
Great. Thanks.
Thank you.
Perfect. Thank you for your question.
Our next question comes from Tayo Okusanya of Credit Suisse. Please go ahead.
Yes, good morning, everyone hope, you're all doing well on the West coast.
Drew in a little bit on the transition portfolios senior lifestyle.
Sure.
<unk> it sounds like with <unk>.
And if I'm wrong things are going there on that.
Are you expecting you may get a million more for Ron when.
When you were initially anticipating.
Is that.
Understanding that correctly.
Yes.
Thats correct.
Okay.
So that additional revenue over and beyond the cash outlays.
The fourth quarter.
Excess of the guidance, we provided last quarter.
That's helpful.
Hi.
Okay.
Okay.
Also because that again.
Effectively increases our guidance from $5 million that we gave last quarter are now opening up to a total of $6 million for 2022.
Great Okay.
Then or.
Senior lifestyle.
A little bit about what's happening with those trackers and assets founded.
Started earlier on like those into one of those assets, we get someone who doesn't use with it.
For the for the new operator.
So we have a couple of different to US we have a total of 18 buildings in total with.
Former senior lifestyle senior lifestyle portfolio six of the buildings are under market based quarterly rent resets.
And the other properties have fixed increases based on the various.
Annual.
Renewals on those so right now I gave information regarding occupancy growth that we're seeing in our portfolio. We're very encouraged to see that there has been.
An uptick in occupancy across the portfolio of those 18 properties and got rent guidance remained unchanged. This quarter, we're reaffirming what the right number.
Okay.
From your commentary that there was one one of one transitional asset where you have to we ended up terminating the lease youre selling the asset.
Sure. There was one property that we had transitioned from senior lifestyle to an operator in Colorado.
Building in Castle Rock, Colorado was a freestanding memory care community.
And we transitioned to a local operator.
And they invested equity dollars to support operations to try to make improvements.
The property has been challenged from a reputation standpoint over the years and unfortunately this regional operator was not able to get the traction they were looking for and didn't have the depth of equity to be able to continue to fund operations. So at that juncture. It really was at a point, where it was better to close the property.
And we're going to move forward.
We are selling that asset.
Sam mentioned, our net book value is approximately $5 million.
And we will look to sell at the highest and best use for them no revenue and right now we have no revenue in our model for them.
So that outside of that so that's why the that's one of 11.
And James going forward Okay.
Thank you very much.
Alright, thank you.
Thank you and as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
And our next question comes from Michael Carroll from RBC Capital markets. Please go ahead.
<unk>.
Yeah. Thanks, I, just wanted to drill into <unk>, a little bit I know you kind of talked about this in your prepared remarks, and the improved rent collection assumptions I guess, what specifically drove that rent increase.
Assuming that <unk> been able to integrate that portfolio into their platform more seamlessly than we previously expected can you talk a little bit about that.
Sure Dave.
When they took over the buildings as a high amount of agency usage as you can imagine.
There has been a lot of disruption in the senior care operational days, So, it's really just going in and and <unk>.
The appropriate leadership in the buildings there wasn't a lot of agency usage in these buildings. So it's really coming from <unk> perspective.
Bringing their culture into these buildings and Wendy spoke to Amg's culture in her prepared remarks.
It takes time to be able to put that in place to transition and so.
Last time based on where we're at we guided to the $5 million as we have worked with <unk> to understand the progress they've made as far as occupancy mix.
Cost containment, that's where we got to employee felt upping guidance.
By the $1 million for all of 'twenty two made sense at this point in time, and we'll continue to revisit that on a quarterly basis based on where <unk> got on our performance.
Aspect.
And what are you assuming that that <unk> can start paying cash rents I know they've been a little backlog by some of the senior care type stuff I mean should we assume that's going to happen in <unk>. I mean do you have that included in your guidance or is this really a second half I think.
We've included a $1 million in the second quarter and guidance and then $2 5 million in each of the third and fourth quarters.
Okay, Great and then I guess could you also talked about you're starting to think about establishing a more permanent rent at those facilities.
How are those discussions going I mean should we learn more about this this next quarter or kind of what's the thought process behind that.
Yes, I would say in fourth quarter, you know right now we did a one year one year cash flow lease with <unk>.
Through the transition.
And so we will be working to extend that lease and working on more permanent rents with AT&T and so look forward for more guidance on that.
As we go through the year, but it'll probably be more towards the end of.
<unk> 2022.
Okay, and then related to the assistant living tenant.
Has the larger deferrals.
Are they expected to pay rents sometime in the second quarter.
Can you kind of talk a little bit about what's going on with that and then I know in the supplement in your prepared remarks, you kind of implied that you expect to resolve that deferral.
With that tenant when you kind of restructure the release through that relationship and what does that mean are you trying to do something bigger there or what's the thought process on that.
So I spoke to this <unk>.
Previous in Q&A until we have a framework with the software to work towards a transition. So that's what I spoke about earlier I would not expect any rent from the existing operator.
We are trying to facilitate a transition on or before July and we're hopeful towards the end of the year as I mentioned this portfolio is cash flow positive.
We do not have any rent from this portfolio in our guidance, but we're hopeful towards the end of the year that it could evolve into contributing to revenue.
And they get the transition.
One other thing on that.
We go through the transition and we work with the new operator.
To evaluate which buildings you want to keep long term in which buildings do we think it makes sense to recycle capital. So there will likely be some asset sales, resulting from this portfolio but.
As we demonstrate in the past we've been advocated recycling capital on assets. So there will likely be asset sales.
Out of this portfolio, which would occur.
Probably later in the year to the first quarter of 'twenty, three but again, we don't have any guidance of revenue in our model for them for this portfolio.
Okay, and then with the currently rent that deferred is there any opportunity to collect that as you kind of close down or is that something that is going to be written off.
We are working through the transition right now, but as Pam mentioned, we have not recorded that into revenue and so I wouldn't.
We haven't debated it we're actually actively going through the.
The resolution right now but.
I wouldn't I wouldn't count on on that and to clarify there is no receivable on the balance sheet for that not recorded this operators on a cash basis. So it's a contractual obligation, but not a receivable on the balance sheet.
Okay that makes sense and then just last from me the two transition memory care asset.
Wanted to make sure I understand this correctly so they paid rent in the first quarter.
Thank you put it out in the press release the amount you don't expect anything in the second quarter and then.
I think the remaining 300000 is going to be quite in the second half of the year is that correct.
Yes, that's correct.
Okay, great. Thank you.
Thanks.
Thank you Michael so much for your question at this time there are no. It's all the questions and I would like to pass back over to Andy for any final remarks.
Thank you all for joining us today I wish you a very happy spring with little Covid impact and we will talk to you in the summer. Thank you very much.
Thank you everybody for joining today's conference call you may now disconnect your lines.